Canada hails progress on crucial autos file at NAFTA talks

WASHINGTON (Reuters) - Canadian, Mexican and U.S. ministers seeking to revamp the North American Free Trade Agreement (NAFTA) have made good progress on the key question of autos, Canadian Foreign Minister Chrystia Freeland said Thursday as pressure for a deal intensified.

Freeland spoke after Washington talks with U.S. Trade Representative Robert Lighthizer and Mexican Economy Minister Ildefonso Guajardo in search of a breakthrough on NAFTA, which underpins some $1.2 trillion in annual trilateral trade.

Although the ministers are pressing for a quick deal to avoid clashing with a July 1 presidential election in Mexico, major differences remain on several U.S. demands.

In particular, Canada and Mexico have struggled with the U.S. insistence for tougher automotive rules of origin, which dictate how much North American content vehicles must contain to qualify for tariff-free access under NAFTA.

“I will say that we have been making good progress on the rules of origin in our conversations with the U.S., with Mexico, and in our trilateral conversation,” Freeland told reporters, but declined to give details.

Asked about a CNBC report that the United States wanted a deal in the next three weeks, she said, “Our commitment is to get a really good win-win-win outcome as quickly as possible and...we’ll work as long as it takes to get a great deal”.

The three ministers are due to meet again on Friday.

A deal on automotive content rules would remove one of the biggest sticking points to updating the 24-year-old pact.

The Trump administration had initially demanded that North American-built vehicles contain 85 percent content made in NAFTA countries by value, up from the current 62.5 percent.

Auto industry executives said last week that Washington had significantly softened this in an effort to move faster towards a deal in the next few weeks.

Stephen Biegun, Ford Motor Co’s vice president of international governmental affairs, said the talks could still result in a deal that makes automakers skip the tariff-free benefits of NAFTA and pay a 2.5 percent external duty.

“With a 2.5 percent external duty on automobiles, it’s a very narrow margin of cost that you can add to manufacturers before they simply opt out of NAFTA,” he said at a finance forum in Washington. That it was not yet the case, however, he added.

“In fact, there’s reason to believe we’re getting close to an acceptable NAFTA deal for all three governments, and we’re optimistic about that,” Biegun said.

ICING ON CAKE

For the three sides to reach an agreement quickly, the U.S. government cannot not maintain its hardline positions, said Jaime Serra, the former Mexican trade minister who negotiated the original accord with the United States and Canada in the 1990s.

“If they show a willingness that translates into flexibility in the negotiation, it’s doable,” he said, noting that it was unclear how far the U.S. position had shifted on other issues.

Among those contentious issues are U.S. proposals to overhaul dispute resolution mechanisms and introduce a clause that could automatically kill NAFTA after five years.

U.S. President Donald Trump, who has repeatedly threatened to walk away from NAFTA unless major changes are made, says the pact has cost many U.S. manufacturing jobs.

Canadian Prime Minister Justin Trudeau told reporters in London on Thursday that “we’ve seen an opportunity to make significant progress on the NAFTA file”.

Lighthizer gave fresh momentum to the talks in early March by floating the prospect of a quick deal “in principle,” though Mexican and Canadian officials say only an agreement covering the essential details would be viable.

FILE PHOTO: Canadian Foreign Minister Chrystia Freeland speaks during a joint news conference on the closing of the seventh round of NAFTA talks in Mexico City, Mexico March 5, 2018. REUTERS/Edgard Garrido

Lighthizer’s team injected a note of levity into proceedings on Thursday that has often been missing in the grinding talks.

The USTR Twitter feed said the ministers were looking to agree a “rebalanced and ‘modernized’ NAFTA 2.0” and the three smiled for a photo next to a birthday cake for Guajardo, who turned 61 on Thursday.

“Happy Birthday Modernized Ildefonso!” read the icing on the cake.

Reporting by Makini Brice and David Lawder; Additional reporting by Dave Graham in Mexico City; Editing by Alistair Bell and Cynthia Osterman